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NEW DELHI: Relief worth Rs 12,000 crore for the middle class (Rs 8,000 crore as standard deduction to salaried taxpayers and Rs 4,000 crore to senior citizens) is being cited by the government as it seeks to brazen out the attack from large stock market players grousing against the longterm capital gains (LTCG) tax.
While a relook on the proposal to impose LTCG tax on stocks and equity mutual funds has been ruled out, senior government officials said the tax concessions for the middle class will cost the exchequer almost as much as the Centre’s annual health insurance bill.
Amid efforts to forge a narrative about middle class having been squeezed, the budgetary figures cited by the government not just reflect an attempt at perception management but, perhaps more importantly, a defiant signal that it will not back down on LTCG in the face of the complaints.
A day after the bloodbath on the bourses, though not exclusively because of the LTCG tax, officials said that while the Modi government has been sensitive to the concerns of the middle class since its first Budget, the need for succouring the poor cannot be ignored for the sake of a section which is far better off.
Officials have sought to clarify that additional cess to finance social sector schemes, including the health cover, will be applicable on the tax and not on the taxable income and will push up the annual outgo marginally.
Finance secretary Hasmukh Adhia had told TOI that the additional outgo for someone with a Rs 40,000 tax liability will be Rs 400.
In addition, the government has maintained that those without transport or medical allowance from their employer, including pensioners, stand to gain more from the annual standard deduction of Rs 40,000.
Although the government may have wanted to do more for the middle class, fiscal compulsions reduced its elbow room, at least during the 2018-19 financial year when it opted to focus more on the poor and senior citizens. The LTCG tax is seen as a major exercise to raise resources and a move towards bringing stocks and equity mutual funds on a par with property.
In fact, government officials have maintained that the proposed 10% levy is “concessional” and is seen as a starting point for further reforms. The top leadership is also clear about the need to end the “disparity” and many view the absence of the levy as a subsidy for the super rich at a time when there is growing concern over widening income disparity.
In fact, officials said the message is that the government will go ahead with the levy even if it means a fall in stock market indices for the next few days. In any case, it is not LTCG tax alone that has resulted in the fall. What has also affected stock market sentiments is a slippage on the fiscal front as well as weak stock markets globally.